NEPRA recommends One Electricity Generation Basket for cost-effectiveness in Pakistan

October 21, 2020 (MLN): It goes without saying that energy is the backbone and basic need of all the sectors of the economy, be it industrial, agriculture, commercial, health, education, domestic, or others. The energy consumption needs of a country are directly related to its GDP growth, therefore, GDP is the main factor used to estimate the energy needs growth in a country and to plan for energy supplies.

Recently, National Electric Power Regulatory Authority (NEPRA) published the State of Industry Report to present the latest data and facts of the power sector market, its performance, monitoring, investments, new initiatives, and regulatory developments.

The report has encapsulated the year-long progress in the power sector, underpinned the development endeavors, and has provided a detailed insight to inform the policymakers about weaknesses in the power sector and recommends corrective measures.

The power sector of Pakistan, as per the report, already challenged by the high cost of electricity generation and inefficiencies of transmission and distribution system, was further affected by the Pandemic COVID-19. The negative economic growth during FY 2019-20 also translated into a decrease in electric power demand in the country, resulting in a reduction of electric power generation.

After facing a long period of electric power generation capacity shortages, Pakistan reached a position where the installed power generation capacity was more than sufficient to meet the total demand in the country in FY 2019-20. From 2016 till June 2020, a total of 13,298 MW electric power generation capacity was added to the power system of Pakistan. The installed power generation capacity of Pakistan as on 30th June, 2020 stands at 38,719 MW.

With the induction of a substantial amount of generation capacity during the last few years, the availability of electricity has improved significantly though the cost of electricity for end-consumers has increased owing to various reasons like high T&D losses, low recovery, circular debt, huge capacity payments, currency devaluation, fuel cost, under-utilization of efficient power plants, etc. The situation indicates a lack of an integrated approach for planning and implementation of power sector expansion and demands to identify and resolve the basic issues leading to inefficiencies in the system, the report mentioned.

One of the major issues causing the high cost of electricity is the accumulation of circular debt – a serious issue confronting the power sector and the country as a whole. It is not only affecting the liquidity of the fuel supplier, generation, transmission and distribution companies but also increases the cost of electricity for the end-consumer. As reported by CPPA-G, an amount of Rs. 2,150,424 million has accumulated as on 30th June, 2020 on account of circular debt of the power sector, stated NEPRA.

Another issue in the Power Sector is the under-utilization of ‘Take or Pay’ Power Plants. On various occasions, the efficient power plants are either not utilized or under-utilized while giving dispatch to the power plants with lesser efficiency which causes an increase in the per unit electricity cost for end-consumers along with the increase in capacity payments for un-utilized capacity.

It mentioned that the plant utilization factors of old Public Sector Power generation (GENCOs) plants have come down to lower limits due to low efficiency, causing inefficient burning of fuel while increasing the cost of generation.

The NEPRA report said that the supply of pipeline quality gas, having low prices as compared to RLNG, to less efficient power plants also adversely affected the cost of electricity generation.

Not only operation of combined cycle power plants in open cycle mode but also burning of pipeline quality gas in open cycle steam turbines add to the cost of electricity for the consumers and needs to be discouraged to ensure most efficient use of valuable fuel and to bring down the electricity cost, the report said.

It is a fact that most of the gas, (including RLNG) based power plants in the power sector of Pakistan are comparatively efficient and fall under the top slots of EMO. However, it is noted that the non-availability of fuel i.e. gas/RLNG is causing the under-utilization or non-utilization of the power plants.

While the imposition of levies, charges, and surcharges on fuel help raise revenues, they increase the cost of electric power generation which affects the whole economy. The affordability of electricity is inevitable for healthy economic growth.

It is pertinent to mention that the competitiveness of the country’s industrial sector in export markets greatly depends on the price of electricity. As per the report, during FY 2015-16, the share of the industrial sector in the total electricity consumption was 26.47% while during FY 2019-20, this share was recorded as 22.88%. This is unusual for a developing economy and requires the attention of all concerned quarters.

The power sector reforms envisaged a transition from monopoly structure to a competitive market; an objective that has not been achieved yet. DISCOs, which were supposed to be independent commercial entities are instead, tied centrally, having the least say in their own commercial decisions. Similarly, the Public Sector Generation Companies (GENCOs) have also been centrally tied by the creation of GENCO Holding Company Limited (GHCL).

With regards to Alternative and Renewable Energies (ARE), Pakistan is blessed with huge potential. Integrating a large share of Variable Renewable Energies (VREs) is a challenge, however, not a new thing. Several countries have increased their reliance on clean renewable power generation with a view to indigenize the resources and minimize dependence on imported fuel.

In the development of RE power plant, the added cost of transmission is one big concern. This challenge can be overcome by the induction of small and medium-size solar power plants near load centers where an evacuation facility (grid) already exists to minimize the transmission cost.

The existing transmission network of NTDC, subject to system constraints, is causing the under-utilization of the efficient plants. Besides some hydel and thermal power plants, the wind power plants in the South are also facing problems in the evacuation of electric power that could be generated. Under the Energy Purchase Agreements (EPAs), in the event of failure to off-take the available energy from RE power plants, these plants are eligible for payments on account of Non-Project Missed Volume (NPMV). Therefore, NTDC must develop a robust transmission system to ensure full evacuation of electric power for transmission across the country from South to Center and North or vice-versa; so that cheaper power from efficient power plants can be made use of.

At present, CPPA-G and KE maintain two separate generation baskets in their respective areas and the Economic Merit Order (EMO) for the power plants with CPPA-G and KE are being determined separately. These two EMOs, result in the operation of in-efficient power plants despite the availability of efficient generation capacity in the country. The cost-effectiveness in power generation can be achieved through one EMO in the country.

The present interconnection infrastructure for the transfer of electric power between the KE and NTDC is not sufficient to safely transfer electric power beyond 650 MW. Despite the availability of cheaper electricity in the CPPA-G basket, KE is generating and/or purchasing comparatively costlier electricity to meet demand in its territory. In order to facilitate the supply of power from CPPA-G basket to KE, infrastructure capable to transfer the electric power to the extent of 2,000 MW or above needs to be available. Such infrastructure will not only be helpful in improving the reliability of the two systems but will also help in capturing the efficiency available in the system.

Despite having surplus power generation capacity, long hours of load-shedding still persist in several areas of Distribution Companies. DISCOs have adopted a policy of load-shedding on feeder level. This policy of load-shedding on feeder level at the pretext of high losses and low recovery is penalizing the genuine law-abiding and good-paying consumers.

The high cost of electricity, inefficient distribution services and load-shedding policy on high loss feeders are pushing consumers away from the DISCOs. The load-shedding policy is compelling the consumers to use the smaller inefficient gas or diesel generators as well as Un-interrupted Power Supply (UPS) which has disrupted the efficient allocation of valuable resources in the economy. The distributed generation through solar power solutions has made a significant ingress in the domestic consumer base of DISCOs which are losing the consumers with high consumption and paying capacity, revealed a report by NEPRA.

Given that Transmission and Distribution (T&D) losses are not unusual in the electrical power system but losses exceeding the acceptable limits increase the price of electricity unnecessarily for consumers. The T&D losses can be minimized through proper engineering design of the distribution system and its operation as per prudent engineering practices.

The report said that DISCOs are supposed to recover 100% cost of their sold units from consumers within a given time. Any short recovery of the billed amount results in an increase of circular debt. The recovery of DISCOs during FY 2019-20 is below 90%.

According to the NEPRA report on Power Sector, the receivables from public and private consumers as well as the delayed payments of subsidies are causing an increase in circular debt. DISCOs are required not only to improve recovery from public and private consumers but also to actively follow-up with the relevant Governments for timely recovery of subsidy amounts.

The report underlined the issues of the power sector including the non-recovery of the claims of CPPA-G against the generation companies that negatively affect the financial health of the power sector.

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Posted on: 2020-10-21T20:05:00+05:00

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